Auctions and Bidding Strategies in the Open Electric Power Market

Deregulation changed the electrical industry from being a regulated priced structure to a market based pricing one. The deregulation of the market brought with it the concept of auctions and the word auction entered the electrical engineers dictionary for the first time. An auction can be defined as a game of incomplete instructions for determining the cost of a product that has no standard value. It is an institution with explicit rules for pricing and resource allocations based on the bids of the participant's. An auction essentially consists of four parts-players, objects, pay-off functions and strategies. Players, either sophisticated or rational, are the market participants who bid for the commodity (object) that is being auctioned. The pay-off functions are the various pricing mechanisms, costs for preparation, participation, reservation and information. The underlying idea in an auction is the maximization of the profits by the players and several strategies are employed to achieve that goal. The players' knowledge of the price of the commodity and the method of procuring the object in an auction give rise to myriad types of auctions. This paper deals with the various types of auctions and their bidding strategies in the deregulated electric power industry